Ticketus LLP & Ors v Craig Whyte & Ors (2013)

Summary

When answering a questionnaire as part of a due diligence exercise prior to entering into a series of contracts, a defendant was guilty of fraudulent misrepresentation when he stated that he had not been disqualified as a director, knowing that answer to be false. Alternatively, he was reckless and negligent in failing to check the accuracy of the answers.

Facts

The claimants (T) applied for summary judgment against the first defendant (D1).

D1 had instigated the takeover of Rangers Football Club Plc. D2 was the bid vehicle. D3 was D2's sole shareholder and was a company owned by D1. T were ticket agents. T's fund management company (O) entered into negotiations with the defendants for a ticketing agreement. T then entered into a series of agreements with Rangers for the purchase of over £17 million of season tickets. The defendants executed deeds of guarantee and indemnity in T's favour. O's due diligence exercise, prior to the transactions, included a director's questionnaire. In his response to the questionnaire D1 stated that he had never been disqualified as a director. Nine months later Rangers went into administration. D1 later admitted that he had been disqualified as a director for seven years and had settled proceedings against him for misfeasance and breach of duty. T brought claims under the guarantee and an additional claim against D1 for fraudulent misrepresentation. T's summary judgment application against D1 related to the misrepresentation claim only.

D1 submitted that his solicitors had prepared the answers to the questionnaire and it had been intended for O's use, accordingly T could not rely upon it. He further asserted that he had been unaware of T's identity at the relevant time.

Held

(1) In order to succeed in their application under CPR Pt 24 T had to show that D1 had no real prospect of successfully defending the misrepresentation claim and there was no other compelling reason why the case should be disposed of at trial, FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2012] EWHC 2477 (Comm), [2013] 1 All E.R. (Comm) 223 applied and Three Rivers DC v Bank of England (No.3) (Summary Judgment) [2001] UKHL 16, [2003] 2 A.C. 1 followed (see paras 10-11 of judgment). (2) It was fanciful to suggest that D1 was unaware of O acting as agent for T. T's involvement was completely clear from the documents emailed between the parties. Even if the statements made in the questionnaire were understood by D1 to be made to O, T, as the ultimate counterparties to the ticketing agreements, were plainly persons to whom it was intended or expected that the information would be passed. The questionnaire was plainly intended to be an important document. The heading on the first page described it as such, and directed D1 to answer all questions "truthfully and without omission". The clear and unequivocal evidence from four members of O's investment committee was that if they had known of D1's history, they would not have authorised the transactions. That evidence had not been subjected to cross-examination, but overall it was clear that the questionnaire was an important part of the diligence process. D1's claim that the answers to the questionnaire were compiled by his solicitor was a surprising one, as a considerable number of the questions could not have been answered without his direct input. Director's disqualifications did not remain registered at Companies House after the period of disqualification had expired, and there was no searchable public record of accusations of fraud, deception and misfeasance. It followed that when the questionnaire was answered, the information requested was not in the public domain. Even if D1 had left completion of the questionnaire to his solicitors and sent it without checking the contents, he adopted the answers by sending it to O without any reservation about its content or its status (paras 35, 40-41, 46-51). (3) In a claim for deceit it was not necessary to establish that the defendant positively knew statements were false. It sufficed that D1 suspected that his statement might not be accurate or that he neglected to enquire into its accuracy. In the case of negligent misrepresentation, the burden was on D1 under the Misrepresentation Act 1967 s.2(1) to demonstrate that he had reasonable grounds to believe, and did believe up to the time the contract was made, that the facts represented were true. The inescapable conclusion on the evidence was that D1 knew his answers to the questions were false. Even if that was wrong, he was reckless about whether the answers were accurate, and provided them not caring whether they were true. Alternatively, he was negligent in failing to check the accuracy of the questionnaire before passing it on and had failed to discharge the evidential burden on him under s.2(1) (paras 42, 53-54). (4) It would not be right to require T's claim to go to trial simply to permit D1 the luxury of cross-examining T's witnesses in the hope that something would turn up. Judgment was therefore entered in T's favour for £17,683,338 plus interest. The court directed an enquiry into the expenses incurred by T in seeking to enforce their rights under the agreements (para.67).